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The double-edged sword effect of political ties on performance in emerging markets: The mediation of innovation capability and legitimacy

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  • Tao Wang

    (Wuhan University)

  • Ting Zhang

    (Wuhan University)

  • Zhigang Shou

    (Wuhan University)

Abstract

To improve our understanding of the bright side and the dark side of political ties and determine the processes linking political ties to firm performance in emerging markets, we investigate the underlying mechanism of political ties’ effects from the perspective of dynamic capability theory and institutional theory. We posit that reduced market-focused innovation capability and strengthened legitimacy mediate the effect of political ties on firm performance. In addition, to capture the nature of the relationship between political ties and performance, we adopt a contingency perspective in our examination of the moderating roles of legal enforceability and competitive intensity. Specifically, we suggest that legal enforceability buffers the negative impact of political ties on market-focused innovation capability but mitigates the positive impact of political ties on firm legitimacy. Moreover, competitive intensity enhances the positive impact of market-focused innovation capability and firm legitimacy on firm performance. We test our hypotheses using a survey with 362 respondents in China. In conclusion, our findings provide important insights into how Chinese firms effectively utilize political ties to improve their performance.

Suggested Citation

  • Tao Wang & Ting Zhang & Zhigang Shou, 2021. "The double-edged sword effect of political ties on performance in emerging markets: The mediation of innovation capability and legitimacy," Asia Pacific Journal of Management, Springer, vol. 38(3), pages 1003-1030, September.
    • Handle: RePEc:kap:asiapa:v:38:y:2021:i:3:d:10.1007_s10490-019-09686-w
    DOI: 10.1007/s10490-019-09686-w
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    2. Liangdong Lu & Mengyao Wang & Jia Xu, 2023. "How to Keep Investors’ Confidence after Being Labeled as Polluting Firms: The Role of External Political Ties and Internal Green Innovation Capabilities," Sustainability, MDPI, vol. 15(17), pages 1-19, September.
    3. Mengmeng Wang & Shufeng (Simon) Xiao, 2022. "How Do Political and Business Ties Matter for Supply Chain Management Capability? An Empirical Test of an Integrative Framework," Sustainability, MDPI, vol. 15(1), pages 1-14, December.

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